Small businesses shaken by Brexit uncertainty

A third of small businesses expect to see no growth at all this year, while nearly half are preparing for export volumes to stall or decline as Brexit uncertainty rumbles on.

The latest Global Trade Barometer, compiled by payments group World First, suggests that small and medium businesses are already scaling back their global reach, with just 30 per cent of those surveyed currently exporting, down from more than half (52 per cent) last year.

The number of SMEs expecting no growth has nudged up from 31 per cent in the first quarter to 32 per cent in the second. Nearly a quarter (23 per cent) expect growth of less than five per cent, compared with 20 per cent at the first three months of the year.

"This gloomy forecast highlights the impact of the quarter’s uncertain political climate on SME exports and is another indication that the UK’s economy is set to slow," World First said.

Growth expectations

Q1 2017

Q2 2017

No Growth

31%

32%

Growth 10% or less

42%

50%

Growth of more than 10%

27%

18%

It's not just Brexit that is weighing heavy on small business owners' minds. A quarter (24 per cent) are worried about rises in inflation, with slightly more (25 per cent) concerned about a fall in consumer spending.

Top 5 business concerns

Fall in consumer spending

25%

Rise in inflation

24%

Currency volatility

20%

Change in government policies

20%

Cash flow

15%

The snap election hasn't helped matters, with "clear spikes" in SME currency hedges. On 18 April, the day the election was called, there were 3.3-times more hedge trades placed than the average for the rest of the quarter, while on election day itself (7 June), there were 2.5-times more hedge trades placed.

Edward Hardy, economist at World First, said: “More than 12 months on from the EU referendum, it’s clear that SMEs across the UK are still wary of volatility in currency markets and the disruption they can bring. The data shows that while SMEs were still happy to hedge their foreign currency exposure in the second quarter, many are hesitant to commit to longer-term hedging contracts.

"While this may be rooted in uncertainty over cash flow, sales forecasts or other financial commitments, it could also be a sign of the first strains in the relationship between UK SMEs and global trade."

Hardy added: "While one quarter of data doesn’t make a trend, should this pattern continue, companies large and small will become more exposed to sharp fluctuations in currency markets."